Credit: Shutterstock photoMoody's CorporationMCO recently acquired a prominent actuarial software company GGY. The company will integrate GGY's capabilities with the Moody's Analytics division to develop cutting-edge insurance risk products for enterprises.
The company refrained from providing the financial terms of the deal but it is expected to have a 2-cent impact on its earnings per share in 2016.
Synergies from this Acquisition
Canada-based GGY is mostly known for its AXIS Actuarial System which integrates pricing, valuation, asset liability management, modeling solutions and others for life insurance companies. Also, the solution is available through either a cloud-based platform or traditional software installation which makes it an accretive asset for Moody's. This is because the solution will give Moody's insurance analytics customers the flexibility plus efficacy that they look for.
Integration of AXIS is expected to augment Moody's Analytics product portfolio - especially its solutions for data management, workflow, regulatory capital and reporting domains. Moreover, it will benefit Moody's advanced simulation and credit modeling business to some extent.
Over the past few years, Moody's has been pursuing growth in areas outside its core credit ratings' service. Having branched out to the emerging and fast-growing professional services and enterprise risk solutions sectors, Moody's now has a wider presence in the banking and insurance industry.
This strategy has allowed the company to not only reduce its risk profile but has also opened avenues for growth by improving its product mix. Specifically, the company has been taking initiatives to expand its analytics business. This sector's disassociation with interest rate volatility also assures top-line growth. Additionally, enterprise products are generally higher-margin in nature and would likely aid the company's bottom line.
This divestiture is a positive for GGY too as it will get impressive growth and expansion opportunities from Moody's global presence, technological prowess and brand value. GGY had generated revenues of $28 million in 2015.
In 2015, Moody's Analytics revenues grew 8% over the prior-year to $1.2 billion.
To Conclude
Acquisitions have given Moody's increased scale and cross-selling opportunities across products and vertical markets. In the last three months, the company acquired two other companies, namely BlackBox Logic (for its RMBS data and analytics assets) and Finagraph (for its automated financial data collection and business intelligence solutions).
However, increased focus on acquisitions could negatively impact its balance sheet in the form of a high level of goodwill and intangible assets, which totaled $1.3 billion, or nearly 25% of its total assets at 2015 end. It also important to note that about 70% of $299.1 million intangible assets is part of Moody's Analytics division. In addition, acquisitions add to integration risks, which may dilute earnings.
Zacks Rank
Currently, Moody's has a Zacks Rank #4 (Sell). Some better-ranked stocks in the same space are Emergent Capital, Inc. EMG , Nielsen Holdings plc NLSN and McGraw Hill Financial's MHFI . Each stock carries a Zacks Rank #2 (Buy).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
